Hot Tamale Company had $120,000 of revenues and $125,000 of expenses. No dividends were paid. The third of the year-end closing entries should include which of the following line items?

Question

Quizplus · Accepted Answer

The third closing entry involves transferring the net income or loss to retained earnings, which is done through a debit to retained earnings for the amount of net income. In this case, since expenses exceed revenues, the net income is negative, resulting in a $5,000 debit to retained earnings. Therefore, the correct choice is B, Debit Retained earnings $5,000.

Hot Tamale Company Had $120,000 of Revenues and $125,000 of Expenses